Australia | Sep 03 2024
Harvey Norman's FY24 sales performance was disappointing when compared to peers. But as cost of living pressures ease, the retailer is placing great faith in the AI revolution.
-Harvey Norman saw sales decline in FY24
-FY25 looking more positive
-Offshore exposures offer mixed blessings
-AI to drive a consumer upgrade cycle
By Greg Peel
Gerry Harvey is not happy. The Harvey Norman ((HVN)) executive chairman told the Fairfax press the company he co-founded may cease to exist given the climbing costs associated with continuous disclosure obligations required of an ASX-listed company. It would instead be privatised or owned by private equity.
But fear not, the timeframe he suggested is ten to twenty years.
The outburst came as Harvey Norman reported a -0.3% fall in sales in the second half of FY24, compared to 1.3% growth for JB Hi-Fi Australia ((JBH)), 1.5% for stablemate The Good Guys and -1.2% for Nick Scali ((NCK)).
The differences do not appear stark during a cost of living crisis, but Ord Minnett points out Harvey Norman's FY24 profitability represented 6% growth compared to pre-covid, while JBH Hi-Fi Australia's profit has increased by 59%, The Good Guys' by 109%, and Nicke Scali's by 53% over the same period.
Harvey Norman's underlying profit fell -20% year on year in FY24. This was a slight beat to consensus forecasts, but a -37% fall in lease depreciation & amortisation (D&A) provided a $27m tailwind, undermining the quality of the result.
That said, one "high quality" aspect was 100% cash conversion.
Signs of Improvement
Franchisee sales were down -5.6% in the year, but net of a -9.7% fall in the first half and only -0.6% in the second. The month of July (FY25) saw 3.3% sales growth.
New Zealand remains a laggard. Retail sales in NZ fell -9.0% in the second half and -9.5% in July as rival JB Hi-Fi accelerates its rollout.
In Australia at least, management suggested "We are strategically positioned to capitalise on improvements in retail trading conditions".
So what will improve?
Well, we had the tax cuts, Macquarie points out, and energy rebates. Unemployment is low, wages are growing as inflation is falling and interest rates appear to have at least peaked, ahead of expected cuts some time in 2025.
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